Stripe Leads Fintech 'Revolution'; Bitcoin Creator Revealed?

Wall Street Journal

Silicon Valley is investing in a startup that seeks an old-fashioned bank charter. Yes, you read that correctly. Warburg Pincus, which has plenty of experience investing in community banks, is leading an investment round in Varo Money, which is developing a mobile-banking app. Varo, led by former American Express and Wells Fargo veteran Colin Walsh, will partner with banks at first but may eventually seek its own charter, so it can accept deposits itself.

Most startups stay far away from holding customers' money (see item below on 60 Minutes' coverage of Stripe), because of the dangers and costs of complying with regulations. But without holding the money, “all you are is a product provider,” said Michael Martin of Warburg Pincus.

The state of Delaware may begin using blockchain technologies for recordkeeping and paperwork, in an effort to cut costs. Delaware is seeking to repair its image with corporations, which have historically flocked to the state because of its low tax rate but are growing dissatisfied with a wave of shareholder litigation.

Apple was supposed to have won the mobile-payments war in one fell swoop, like Napoleon entering Italy, when it entered the fray with its Apple Pay service. It hasn't worked out that way, according to “Heard on the Street,” as retailers, credit-card networks, rival phone makers and banks all decided they didn't want to roll over and give the market to Apple.

Instead, the situation has become a convoluted market of companies partnering with each other at the same time they are competing with each other. It's hard to tell who's on whose side. To the point, it's such a mess that whoever wins ultimately may not have much to win when it's all said and done. Everyone is cannibalizing each other's fees, the column said.

Financial Times

CEOs of big U.S. banks have sounded the warning signal on commercial real estate lending. Bank of America, Capital One Financial and U.S. Bancorp also warned that CRE bubbles may be forming across the country, as banks start to get chippy with each other to win deals.

“Competition is pressuring loan terms and pricing” in CRE, Capital One CEO Richard Fairbank said last week. The value of banks’ CRE loans has risen 11% this year, according to the Fed. But the property market has softened because difficult financial conditions and falling oil prices have made foreign buyers skittish.

Home Bancshares in Conway, Ark., has “embarked on an effort to enhance our risk management practices” in CRE, Chief Lending Officer Kevin Hester said. Home is “comfortable with our CRE” exposure but cited regulatory scrutiny. “We know it’s going to be a focus when the examiners come in next. They told us that.”

Elsewhere ...

CBS News: If banks want to be sticks in the mud and just manage the ho-hum business of collecting and keeping deposits, there will be a continuing need for that service, Stripe co-founder Patrick Collison told “60 Minutes” on Sunday. Otherwise, fintechs have targeted “nearly all the other functions” of banking, Lesley Stahl reported.

“I think there'll always be a need for sort of somewhere to store your money, to have it sit,” Collison said. “And, we think, you know, for all their flaws, they have a lot of experience at being banks, right?”

Stahl also mentioned TransferWise, which lets consumers send money across national boundaries with automatic currency conversion. “Banks are thinking about” how to respond, former Citi CEO Vikram Pandit told Stahl. “They're trying to understand what all this new technology can mean.”

Not surprisingly, Stahl gives a shout-out to millennials, who are blamed for rejecting the concept of a teller sitting behind a window in a marble-encrusted bank lobby. For millennials, Venmo has apparently outmaneuvered PayPal to become their app of choice for paying people.

“Millennials … grew up on computers and are accustomed to getting what they want when they want it,” said Affirm founder Max Levchin.

Pandit, who has personally invested in fintech startups, touts digital banking as a possible solution to underbanked/unbanked problem, since the new companies are “transparent … [and] tell you what the fees are.” And since it's an online startup, their fees are a “fraction of some of the fees that are charged by banks,” Pandit said.

To her credit, Stahl gets Collison to admit that the lower cost structure means fintechs can beat banks at the price game, but that could mean the loss of jobs. “I think in general technology always sort of makes some jobs less relevant, or perhaps, even obsolete,” Collison said.

Stahl also touches, very briefly, on the subject of money-laundering and cybersecurity, whether these elephants in the room will cause the same sorts of problems for fintech as they do for banks.

“The best we can—sort of—as a society hope to do is to sort of design security in the most thoughtful and sort of robust way possible,” Collison responded. (If Stripe is only “sort of” designing its security protocols, does that mean they will only “sort of” work?)

What about the largest banks, like JPMorgan Chase and Wells Fargo, and the massive amount of time, effort and expense they have already put into innovating new tech products?, Stahl asked. “They can only be part of it,” Collison said. “They can't be sort of the agents driving it forward.”

BBC News: Is Craig Wright the inventor of bitcoin? Wright, an Australian who holds graduate degrees in statistics, law, theology and computer science (he's about to obtain his second Ph.D. in the latter), was outed as bitcoin's co-inventor in December, although Wright denied it at the time.

Now he's changed his mind. Wright revealed his identity over the weekend to the BBC, The Economist and GQ. He also signed “digital messages using cryptographic keys used during the early days of Bitcoin,” which provides supposed proof that it's him, the AP reported.

Wright also published a blog post, which he says provides cryptographic proof that he's Satoshi Nakamoto, the alleged bitcoin mastermind. Some bitcoin experts, including the Bitcoin Foundation's Gavin Andresen, believe he is, the BBC reported.

Not so fast, my friend.

“Mr Wright could well be Mr Nakamoto, but that important questions remain,” The Economist said. “Indeed, it may never be possible to establish beyond reasonable doubt who really created bitcoin.”

First off, a number of folks have already started poking holes in Wright's claims. (See here, here and here.)

The Economist also, in its measured British way, published a long piece outlining the history of trying to discern bitcoin's creator and providing a condensed explanation of what would be necessary to prove Wright's who he says he is.

In short, it's not possible to verify with 100% accuracy that Wright is the man, The Economist said, raising several valid points.

“Why does he not let us send him a message to sign, for example?” The Economist asked. “Mr Wright could have used his supercomputer to calculate the signature for this particular text in what is known as a 'brute-force attack.'”

Wright also “could have obtained the keys from someone else, perhaps Hal Finney or Dave Kleiman. Since both are dead, they cannot be asked.”

Columbus Dispatch: Huntington Bancshares continues its court fight to obtain $81 million in unpaid loans and accrued interest from a former loan client who built a business selling fake computer equipment.

Huntington's case is against Cyberco in Grand Rapids, Mich., and its founder, Barton Watson. A federal bankruptcy court judge in Ohio has ruled that Huntington should've known that Watson was up to no good, considering the myriad red flags.

“There was clearly a fraud. We are a victim as well," CEO Steve Steinour recently said. Huntington recorded a $38.2 million charge last year to cover its losses on the loan. Huntington has filed an appeal of the bankruptcy judge's ruling with a federal court in Cincinnati.